Master budget

Definition

The master budget is a comprehensive financial planning document that consolidates all of an organization’s individual budgets. It includes projections for sales, production, direct materials, labor, overhead, and administrative expenses to provide a complete picture of financial performance.

5 Must Know Facts For Your Next Test

1. The master budget consists of two main components: the operating budget and the financial budget.
2. It serves as a blueprint for management's action plans for the upcoming period.
3. The master budget helps coordinate activities across different departments within an organization.
4. Preparation typically involves participation from various levels of management to ensure accuracy and feasibility.
5. Variance analysis is often performed by comparing actual results to the master budget to assess performance.

Review Questions

• What are the two main components of the master budget?
• How does a master budget help in coordinating activities across different departments?
• Why is variance analysis important when using a master budget?

Related terms

Operating Budget:

A component of the master budget that focuses on income-generating activities like sales and production.

Financial Budget:

A component of the master budget that includes capital expenditures, cash flow forecasts, and projected balance sheets.

Variance Analysis:

The process of comparing actual financial performance with the planned figures in the master budget.